The Spark That Could Ignite Web M&A

Six months ago, it looked like mergers and acquisitions were heating up again. Om thought it was good news for startups, while I fretted about companies being pressured to make deals that didn’t make strategic sense. I needn’t have worried. After the usual end-of-year lull, deals are starting to be made again.

And no sector is riper for deal-making than tech, especially those companies active on the web. Not only has the economy been stable for nearly a year, but web companies that survived have emerged with leaner operations and more cash on hand. Perhaps more importantly, the web has evolved to a point where mergers are starting to make strategic sense.

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Here’s why: Over the past several years, web content has developed something of a split personality. Part of it is driven by information, navigated by search and static in nature. The other part is driven by conversation, accessed through discovery and protean in essence. This distinction has been around for some time, and discussed at length on this site, but it’s becoming more and more of an acute reality, especially when it comes to big web companies.

The dichotomy is becoming clearer in data as well, as evidenced by a report from Hitwise this week comparing the downstream news traffic of two sites, Google News (s goog) and Facebook. The 10 sites that Google News drives traffic to have next to no overlap with the sites to which Facebook members are linking. Only CNN.com is on both lists. And while print media dominates Google News’s list, People is the only print-oriented publication on the Facebook list.

It’s also clear that the conversational web isn’t going to make the informational web irrelevant. Rather, they complete each other in a Jerry Maguire kind of way. So marrying the informational web to the conversational web is appealing to companies. It means greater mindshare among their users — and therefore more opportunities to serve them ads or coax them into premium subscriptions. It means higher profits if they can combine the two without a corresponding increase in operating costs. And it means a more integrated, seamless experience of the web — instead of its fragmented nature today, with people jumping from site to site.

But the catch is, people like the web fragmented. They get nervous when a single company promises them that unified, seamless experience. That’s why Google has launched social network (Orkut, FriendConnect) after social network (Wave, Buzz) without gaining solid traction. Buzz won terrific reviews on its launch, but there’s just something troubling about letting Google – or any one company – stalk all of our online behaviors.

And that leaves Google with little choice but to buy its way into that Maguire-ish state of completion that it so craves. Of course, many companies crave such a state. To that end, speculation that Microsoft (s msft) might make a play for Twitter has been around for some time, though the issue was inflamed by comments made by Steve Ballmer this week. Just ask Yahoo (s yhoo) how hard it is to say no to Ballmer.

All it will take is one big deal to start a wave of web mergers. It might not even come from Google or Microsoft. Facebook understands the need to extend its reach into the informational web – a key reason for its Facebook Connect alliances with companies like Yahoo. A merger with Yahoo would present its own share of problems for Facebook, but it would turn the company — overnight — into a formidable web giant. Not to mention the fact that it would an alternative to the IPO that the company seems to be dreading.

I wonder why you say the Economy has been stable for nearly a year. The stock market has been in Bullish mode for nearly a year. That’s a very different thing from saying the economy is stable. In fact, the market seems to be a lead indicator for the economy.

Possibly people like the web fragmented, but for social media, the reason Google has not made any traction is because there is already a leader for that model, be it Flickr, whatever. When it comes to social media, people want to be in the bucket where everyone else is, not the also ran, which no one they know or care about may be using.

That being said, some silos are good. My Twitter world is a lot different from my Facebook world, and I do not necessarily want them to mix, they are powerful BECAUSE they are separate populations, based on different criteria.

Which is one reason Google Buzz automatic opt in was such an enormous gaff.

Some people multicast the same drivel across multiple social media platforms, and I think that is hurting them more than helping them; people use different platforms on purpose and do not want to be exposed to the redundancy.